CONSOL Energy Inc. Second Quarter 2012 Earnings...
Transcript of CONSOL Energy Inc. Second Quarter 2012 Earnings...
CONSOL Energy Inc. – Second Quarter 2012 Earnings Call
July 26, 2012
J. Brett Harvey, Chairman and CEO
Nicholas J. DeIuliis, President
William J. Lyons, CFO
Robert F. Pusateri, EVP, Sales, Marketing, & Transportation
Cautionary Language
2
This presentation contains statements, estimates and projections which are forward-looking statements (as defined in
Section 21E of the Securities Exchange Act of 1934, as amended). Such statements include estimates of reserves and
resources, projections and estimates concerning the timing and rates of return of future projects, and our future production,
revenues, income and capital spending. These forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those statements, estimates and projections. Accordingly, investors should not place
undue reliance on forward-looking statements as a prediction of future actual results. Factors that could cause future actual
results to differ from the forward-looking statements are described in detail under the captions "Forward Looking
Statements" and "Risk Factors" in CONSOL Energy Inc.’s annual report on Form 10-K for the year ended December 31,
2011 filed with the Securities and Exchange Commission (SEC), as updated by any subsequent Form 10-Qs. The forward-
looking statements in this presentation speak only as of the date of this presentation; we disclaim any obligation to update
the statements, and we caution you not to rely on them unduly.
The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible oil and
gas reserves that a company anticipates as of a given date to be economically and legally producible and deliverable by
application of development projects to known accumulations. We may use certain terms in this press release, such as EUR
(estimated ultimate recovery), unproved reserves and total resource potential, that the SEC's rules strictly prohibit us from
including in filings with the SEC. These measures are by their nature more speculative than estimates of reserves prepared
in accordance with SEC definitions and guidelines and accordingly are less certain. We also note that the SEC strictly
prohibits us from aggregating proved, probable and possible reserves in filings with the SEC due to the different levels of
certainty associated with each reserve category.
Except for proved reserve data, the information this presentation is based on a summary review of the title to the gas rights
we hold, as well as a summary review of the title to the coal from which many of our coalbed methane rights derive. As is
customary in the gas industry, prior to the commencement of gas drilling operations on our properties, we conduct a
thorough title examination and perform curative work with respect to significant defects. We are typically responsible for
curing any title defects at our expense. This curative work may include the acquisition of additional property rights in order
to perfect our ownership for development and production of the gas estate.
This presentation does not constitute an offer to sell or a solicitation of offers to buy securities of CONSOL Energy Inc.
3
Investment Thesis and Scorecard
Tier One coal, gas, and land assets provide synergies and risk reduction
Low cost, high-BTU coal that can travel and transform target markets
Low cost gas assets; adding liquid targets to the 2012 program
Land assets give CONSOL a strategic advantage, especially in Southwest Pennsylvania
Long-lived assets enable strategic value enhancements
Integration with partners going well
Monetized underutilized assets to pull value forward
Solid balance sheet and liquidity enables us to develop our organic
projects
$2.6B of liquidity and solid debt leverage ratios
Consistent operating and financial results
Solid earnings and operational cash flow – hit our 2Q12 production guidance
CONSOL continues to respond to challenging market conditions
Blacksville, Robinson Run, and Buchanan mines have extended vacation weeks
Fola Complex placed on long-term idle
4
Our coal and gas operations ran safely and efficiently
We faced challenging thermal and metallurgical coal markets
We continued to sell non-core assets, which generated
earnings and cash flow
As a result, CONSOL Energy:
Earned $153 million, or $0.67 per diluted share
Generated $138 million of cash flow from operations, and
Generated $414 million in EBITDA (a non-GAAP financial measure)*
*See second quarter 2012 earnings release for reconciliation.
Posted Solid Quarterly Results
5
Strong Liquidity Position of $2.6 Billion
Cash on hand of $200 Million
Accounts receivable securitization and revolving credit facilities
of nearly $2.4 billion
Amount/ Amount Letters Amount
June 30, 2012 ($MM) Capacity Drawn of Credit Available
Cash and Cash Equivalents $200 $0 $0 $200
Accounts Receivable Securitization $200 $0 $161 $39
Revolving Credit Facilities $2,500 $0 $170 $2,330
TOTAL $2,900 $0 $331 $2,569
6
Goal is to Maintain our Strong Liquidity Position
Operating Cash Flow - $MM
2012 2011
Net Cash Provided by Operations $138 $360 ($222)
Capital Expenditures ($408) ($331) ($77)
Proceeds From Assets of Sales $224 $7 $217
Net Payments on Short-Term and Long-Term Debt $0 ($106) $106
Dividends Paid ($28) ($23) ($5)
Other ($13) ($8) ($5)
Net (Decrease)/Increase in Cash ($87) ($101) $14
QTR Ended QTR-Over
QTR
Change
June 30,
7
Revolving Credit Facilities Debt Covenants
CONSOL Energy and CNX Gas currently maintain strong leverage ratios
Both facilities are well within debt covenants
Limit
June 30,
2012
CONSOL Energy Revolver:
Maximum Leverage Ratio > 4.75 to 1.0 1.92 to 1.0
Minimum Interest Coverage Ratio < 2.50 to 1.0 6.29 to 1.0
Senior Secured Leverage Ratio > 2.00 to 1.0 0.07 to 1.0
CNX Gas Revolver:
Maximum Leverage Ratio > 3.50 to 1.0 0.46 to 1.0
Minimum Interest Coverage Ratio < 3.00 to 1.0 35.17 to 1.0
8
Gas Division Goals Migrating Capital and Activity to High Value Areas
Program goals to drive CBM and Marcellus costs lower
Marcellus: multi-well pads and lengthening laterals
CBM: lower contractor and field service costs
Marcellus Shale objectives
Ramp up development of our wet acreage position with our partner Noble Energy
Focusing on 100% NRI acreage in Greene and Westmoreland counties, PA
Further delineate Central PA and Northern WV position
91 gross wells expected for 2012; 31 wells targeting liquids
Utica Shale objectives
Explore and exploit the Ohio Utica Shale with our partner Hess Corporation
18 gross wells expected for 2012; all 18 wells targeting liquids
9
2012 Drilling Focuses on Liquids Exposure
OH
PA
WV
MD
VA
Dry Gas
Wet Gas
18 (Gross) Utica Shale Wells 91 (Gross) Marcellus Shale Wells
10
Drilling Results and Forecast
Formation Region 2009 2010 2011 1Q12A 2Q12A 2012E
Coalbed Methane Virginia 204 181 214 14.0 8.0 52.0
Total Shales: (Gross) 17 24 78 27.0 23.0 109.0
Marcellus Shale Central PA 0 4 19 8.0 5.0 13.0
Southwest PA
(incl. NBL) 17 20 50 14.0 16.0 72.0
West Virginia 0 0 9 4.0 2.0 6.0
Totals 17 24 78 26.0 23.0 91.0
Utica Shale (incl. HES) 0 0 0 1.0 0.0 18.0
Conventional and Other 18 129 36 13.0 8.0 25.0
Totals (net to CONSOL) 239 334 328 40.5 27.5 131.5
% Shales Wells: Dry gas target 100% 100% 100% 78% 74% 55%
% Shales Wells: Liquids target 0% 0% 0% 22% 26% 45%
% Shales Wells: Completed 100% 96% 88% NM 100% 100%
Total Production (Bcfe) 94 128 154 38 37 157-159
Total Capital ($MM) 335 420 662 98.5 143 623
Gross Wells Drilled By Formation From 2009 Through 2012E
11
Marketing 3Q12 and 2012 Forecasts
85%
7% 7% 1%
Sales Tons by Product Year 2012
Thermal Low Vol High Vol Mid Vol
3rd
Quarter
2012
Year
2012
3rd
Quarter
2011
Year
2011
Thermal 12.7 50.5 12.4 52.9
Low Vol 1.2 4.4 1.5 5.6
High Vol 0.9 4.2 1.0 4.8
Mid Vol 0.1 0.3 0.0 0.0
Total 14.9 59.4 14.9 63.3
Contracted tons for 2012: 96%
Priced: About 95% with more under negotiation
Unpriced: Almost all is Metallurgical Coal
Approximately 80% of the Low-Vol & High-Vol met coal tons are forecasted to be shipped overseas
Approximately 90% of the thermal coal tons are forecasted to be delivered domestically
Developing new markets for all thermal and met
17% of the overseas thermal coal sales are forecasted to be shipped to our new market in India
85%
8%
6% 1%
Sales Tons by Product 3rd Quarter 2012
Thermal Low Vol High Vol Mid Vol
2012 Coal Sales Facts and Goals
12
Energy Markets
Experienced a slowdown in both sides of our business
and CONSOL is adjusting
Coal
Largely matched production and sales in order to
minimize inventory increases
Gas
Reduced horizontal shale well count as prices softened
Actions
Redoubling efforts to manage costs
Continuing to pull value forward
Adjusting To Weak Energy Markets
13
2011 Marcellus Shale JV with Noble Energy: $3.3 billion in
aggregate payments of cash and carry
2011 Antero Resources ORRI sale: $193 million in cash
2011 Utica Shale JV with Hess Corporation: $593 million in
aggregate payments of cash and carry
2012 misc. asset sales: $54 million in cash
2012 sale of Youngs Creek reserves/resources: $170 million
in cash, plus 8% royalty
2012 Western Allegheny Mining JV: Self-funded ramp of
metallurgical coal production (NPV not yet disclosed)
Bringing $4.31 Billion in Value Forward Since 2010
14
Developing metallurgical coal assets organically at a cost
($/ton) well below competitors’ recent acquisition rates
When added to existing production, met capacity increases to
over 14 MM tons by 2015
An expanded product mix will better enable CONSOL to meet
customer needs
Investing in Metallurgical Coal Production
*Note: Western Allegheny’s 2012 production, net to CONSOL, is expected to be
0.15 MTs and expected to be self-funding.
Amonate BMX
Western
Allegheny
Est.Capital Expenditures ($ MM) $51 $662 $54
Annual Production (MM tons) 0.6 5.1 1.2*
CapEx per Annual Ton $85 $130 $22.50
15
Our Assets, Strategy and People Create An
Investment Opportunity
Coal and gas operations are long-lived, low-cost, and provide solid growth
Our well-capitalized assets provide more consistent operational execution
Our emphasis on safety and compliance increases reliability
Balance sheet remains strong with $2.6 billion of liquidity
Valuation remains compelling using sum of the parts
Marcellus liquids and Utica results (3Q12) to drive valuation improvement
Stabilization and rebound in the met coal markets
Solid Execution of our core program and coal projects to serve a rebounding market
CONSOL Energy Inc. – Questions?
16